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House passes Dodd-Frank replacement bill

Legislation replacing much of the Dodd-Frank Wall Street Reform and Consumer Protection Act was passed by the House on Thursday, along party lines by a vote of 233-186.

The Financial CHOICE Act makes substantial changes at the Securities and Exchange Commission and other financial regulators, including the Financial Stability Oversight Council, which would no longer be able to designate non-bank firms as systemically important and would have to repeal previous designations.

The bill would also repeal the Department of Labor's new fiduciary rule until the SEC produces its own standard, and remove the Volcker rule that prevents government-insured banks from engaging in riskier investment activity.

Other changes at the SEC include more cost-benefit analysis requirements, increased penalties for civil and administrative violations, and creation of an enforcement ombudsman and enforcement advisory committee. The Council of Institutional Investors warns that the bill's tighter restrictions on shareholder processes for submitting corporate proposals and voting for corporate board directors threaten fundamental shareholder protections.

“The CHOICE Act would dismantle important shareholder rights, make investing in public companies riskier and undercut the ability of the SEC to protect investors,” CII Executive Director Ken Bertsch said in an emailed statement.

The bill would remove a Dodd-Frank requirement that larger private equity funds and fund managers register with the SEC. Jeremy Swan, national director of the CohnReznick advisory firm's private equity and venture capital practice, said in an email that while the change would be welcome by the funds, “numerous limited partners have the opposite view, as many feel that the regulatory hurdles and SEC examination process has increased transparency into the private funds they invest in.”

Prospects for Senate passage are considered dim, with no hearings or votes scheduled.